India’s Cost Gap with Vietnam is 8-12%; Tariff Cuts Essential for China+1 Strategy: Citi Economist
India faces an 8-12% cost disadvantage compared to Vietnam in attracting global supply chains, largely due to higher import tariffs. Citi’s economist Samiran Chakraborty highlights that without tariff rationalisation, India risks losing ground in the China+1 diversification wave, despite improvements in infrastructure and business environment.
Samiran Chakraborty, Managing Director and Chief Economist at Citigroup, emphasized that India's cost gap with Vietnam, estimated at 8 to 12 percent, poses a significant challenge for attracting global supply chains unless India lowers its import tariffs. Although India showed strong progress in the China+1 strategy — surpassing Vietnam in number of companies adopting this approach through much of 2024 — recent tariff hikes since late 2022 have diminished this momentum. Chakraborty cautioned that continuing high tariffs could slow multinational manufacturers' relocation decisions, undermining efforts to leverage improvements in ease of doing business, infrastructure, logistics, and port facilities enhanced through production-linked incentives. Tariff rationalisation must become a priority if India intends to remain competitive against peers like Vietnam, Indonesia, and Thailand in the global manufacturing ecosystem. Vietnam’s significantly lower average tariffs on electronics (below 1%) compared to India's ~9% exacerbate India's cost disadvantage. The article underscores that while India has made strides in policies and subsidies, addressing tariff barriers is crucial for sustaining and enhancing its position as a preferred global manufacturing destination under the China+1 strategy.
